Copyright © 2005 Pearson Education Canada Inc. Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-1 Chapter 3 Environmental.

Copyright © 2005 Pearson Education Canada Inc.Concepts in يحStrategic Management, Canadian Edition

Wheelen, Hunger, Wicks 3-1

Chapter 3

Environmental Scanning and

Industry Analysis

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-2Copyright © 2005 Pearson Education Canada Inc.

Learning Objectives

From the techniques presented in this chapter you should be able to:

1. Recognize aspects of an organization’s environment that can influence its long-run decisions

2. Identify the aspects of an organization’s environment that are most strategically important

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-3Copyright © 2005 Pearson Education Canada Inc.

Learning Objectives cont.

3. Conduct an industry analysis to understand the competitive forces that influence the intensity of rivalry within an industry

4. Identify the range of stakeholders that can affect an organization’s activities and/or be affected by them

5. Categorize international industries based on their pressures for co-ordination and localization

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-4Copyright © 2005 Pearson Education Canada Inc.

Learning Objectives cont.

6. Construct strategic group maps to assess the competitive positions of firms in an industry

7. Identify key success factors for industries and/or strategic groups. Use publicly available information to conduct competitive intelligence

8. Understand the most significant environmental forces to which an organization must respond in order to enhance its long-term prospects of profitability and survival

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-5Copyright © 2005 Pearson Education Canada Inc.

Environments

Environmental scanning:The monitoring, evaluating, and disseminating

of information from the external and internal environments to key people within the organization to avoid strategic surprise and ensure the long-term health of the firm.

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-6Copyright © 2005 Pearson Education Canada Inc.

External Environment

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-7Copyright © 2005 Pearson Education Canada Inc.

Societal Environment — Important Variables

Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment levels

Wage/price controls

Devaluation/revaluation

Energy availability and cost

Disposable and discretionary income

Technological

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab to marketplace

Productivity improvements through automation

Political-Legal

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-8Copyright © 2005 Pearson Education Canada Inc.

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-9Copyright © 2005 Pearson Education Canada Inc.

Threat of New Entrants

Barriers to entry:Economies of ScaleProduct DifferentiationCapital RequirementsSwitching CostsAccess to Distribution ChannelsCost Disadvantages Independent of SizeGovernment Policy

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-10Copyright © 2005 Pearson Education Canada Inc.

Rivalry Among Existing Firms

Intense rivalry related to:Number of competitorsRate of Industry GrowthProduce or Service CharacteristicsAmount of Fixed CostsCapacityHeight of Exit BarriersDiversity of Rivals

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-11Copyright © 2005 Pearson Education Canada Inc.

Threat of Substitute Products or Services Substitute Products:

Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry.

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-12Copyright © 2005 Pearson Education Canada Inc.

Bargaining Power of Buyers Buyer is powerful when:

Buyer purchases large proportion of seller’s products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high percentage of a

buyer’s costs Buyer earns low profits Purchased product is unimportant to the final quality or

price of a buyer’s products

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-13Copyright © 2005 Pearson Education Canada Inc.

Bargaining Power of Suppliers

Supplier is powerful when: Supplier industry is dominated by a few companies

but sells to many Its product is unique and/or has high switching costs Substitutes are not readily available Suppliers are able to integrate forward and compete

directly with present customers Purchasing industry buys only a small portion of the

supplier’s goods.

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-14Copyright © 2005 Pearson Education Canada Inc.

Power of other Stakeholders

A constituent who can affect an organization’s activities and/or be affected by themGovernmentsLocal communitiesCreditorsUnionsSpecial interest groups

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Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-16Copyright © 2005 Pearson Education Canada Inc.

Industry Evolution

Fragmented Industry No firm has large market share and each firm

serves only a small piece of the total market in competition with others.

Consolidated Industry Dominated by a few large firms, each of which

struggles to differentiate its products from the competition.

Concepts in يحStrategic Management, Canadian EditionWheelen, Hunger, Wicks 3-17Copyright © 2005 Pearson Education Canada Inc.